Macroeconomic Stabilization Effect of Foreign Direct Investment in Zimbabwe

Countries in the world undergo turbulences in economic activity known as economic or business cycles. It is the length of the cycles that differs depending on the economy’s macroeconomic strengths in policy and implementation. Zimbabwe is one economy that has been faced by various episodes of economic cycles. Zimbabwe has undergone decades of economic and financial crisis. The study seeks to analyse the macroeconomic stabilization effect of foreign direct investment inflows in Zimbabwe. When national income undergoes some fluctuations some inflows may help stabilize the trend and hence aid in smooth economic growth and stability in the macroeconomic environment. The study uses annual data for the period 2009 to 2019 for its analysis. Appropriate data transformation was done to ensure good results for policy derivation. The study used a trend and correlation analysis to determine the stabilization effect of FDI. A positive correlation between national income and FDI of 78.87% was obtained, implying that FDI inflows are pro-cyclical. The correlation results have been consistent with the observed trend of the transformed data. The pro-cyclicality nature of FDI inflows means that they follow the same trend with national income; in times where national income is high (low), FDI inflows are also high (low). FDI inflows has no macroeconomic stabilization impact on fluctuation in national income in Zimbabwe. The study results, however do not imply that FDI is not crucial, the levels of inflows might only be too weak to support stabilization, and hence the levels should be raised. There is greater need to attract more FDI in the economy to reap the much cited benefits of the inflows especially for less developed nations like Zimbabwe. Macroeconomic policies overhaul is required in order to create a stable and hospitable investment climate in the country that fosters export competitiveness, trade openness and domestic capital formation. Issues of property rights should be correctly addressed not to deter potential foreign investors